Jones Lang LaSalle Incorporated — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. JLL provides commercial real estate services across the Americas, EMEA and Asia Pacific, and investment management through LaSalle. It operated in more than 80 countries and reported approximately 90,000 employees. Unless noted, financial amounts are U.S. dollars.
Financial performance and position
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Total revenue | $16.32 billion | $14.45 billion | +13% |
| Fee revenue (non-GAAP) | $6.49 billion | $5.74 billion | +13% |
| Operating income | $706.9 million | $545.9 million | +29% |
| Net income attributable to common shareholders | $484.1 million | $276.0 million | +75% |
| Diluted EPS | $10.54 | $6.03 | +75% |
| Adjusted EBITDA (non-GAAP) | $953.2 million | $770.7 million | +24% reported; +25% local currency |
| Operating cash flow | $604.1 million | $798.7 million | −24% |
| Cash and cash equivalents on balance sheet | $480.9 million | $268.0 million | +$212.9 million |
| Total debt | $688.3 million | $752.7 million | −$64.4 million |
| LaSalle assets under management | $60.5 billion | $58.1 billion | +4% reported |
Margins: Operating income was approximately 4.3% of total revenue. JLL reported a 5.3% net income margin attributable to common shareholders measured against revenue before reimbursements, and a 14.7% Adjusted EBITDA margin on fee revenue in U.S. dollars (14.9% in local currency). Fee revenue and Adjusted EBITDA are non-GAAP measures.
Liquidity and debt: JLL had no borrowings outstanding under its $2.75 billion unsecured revolving credit facility at year-end; the facility matures in May 2023. It reported $32.7 million of short-term borrowings and long-term senior notes with $275 million face value due 2022 and €350 million due in 2027 and 2029. Ratings were investment grade: Baa1 and BBB+, both with stable outlooks. JLL reported compliance with debt covenants. The cash flow statement’s $634.2 million ending balance includes $153.3 million of restricted cash; the balance-sheet cash figure is $480.9 million.
Business and segment developments
- Real Estate Services (RES) revenue was $15.78 billion, up 12%. Property & Facility Management was the largest RES revenue growth contributor; Leasing led RES fee revenue growth.
- LaSalle revenue increased 50% to $533.9 million, driven by record incentive fees from client property dispositions, primarily in Asia Pacific. Equity earnings from real estate ventures fell to $32.8 million from $44.4 million.
- Americas revenue rose 13% to $9.04 billion and segment operating income increased 20% to $421.9 million.
- EMEA revenue rose 14% to $3.50 billion; segment operating income increased 52% to $77.0 million, with improvement attributed in part to stabilization of the Integral business and lower bad-debt expense.
- Asia Pacific revenue rose 8% to $3.25 billion, but segment operating income declined 3% to $113.1 million. Lower Capital Markets revenue and higher costs on certain client assignments weighed on performance.
- LaSalle AUM increased to $60.5 billion, reflecting $9.0 billion of acquisitions and $4.5 billion of net valuation increases, partly offset by $10.1 billion of dispositions and withdrawals and $1.0 billion of foreign-currency decreases.
Cash flow, capital allocation and unusual items
- Operating cash flow declined to $604.1 million, mainly due to higher reimbursable receivables net of payables, working-capital needs and incentive compensation payments. Net income increased year over year.
- Investing activities used $280.4 million, including $101.3 million of net cash for 2018 acquisitions and $161.9 million of capital expenditures excluding consolidated VIE property acquisitions. JLL also paid $72.3 million toward deferred acquisition and earn-out obligations from prior acquisitions.
- Financing activities used $141.3 million. JLL paid $37.8 million in dividends; annual dividends declared were $0.82 per share, versus $0.72 in 2017. No shares were repurchased under the repurchase program in 2018.
- Restructuring and acquisition charges were $38.8 million, including $25.5 million of severance-related charges, $5.9 million of due diligence and integration costs, and $7.4 million of net earn-out fair-value adjustments.
- The 2018 income-tax provision was $214.3 million, including an additional $47.0 million related to U.S. tax reform and transition-tax calculations. The reported effective tax rate was 30.4%; excluding the tax-reform charge, JLL stated it was 23.7%. The 2017 provision included a $125.9 million tax-reform charge, affecting year-over-year net income comparisons.
- ASC 606 was adopted retrospectively, accelerating recognition of certain revenue and increasing gross presentation of reimbursable revenue and expenses. The filing says these presentation and recognition changes affected reported historical comparisons.
Outlook, risks and contingencies
- JLL gave no specific revenue, earnings or margin guidance. Management said it expected the accelerated Beyond transformation program to continue through 2019 and 2020, with ongoing investment in technology, data, digital capabilities and operating platforms.
- Management described 2018 business conditions as strong, while noting that results depend on real estate transaction activity, economic conditions, interest rates, currency movements and geopolitical developments. The business is seasonal, with revenue and profits historically increasing through the year.
- Principal risks include real estate and capital-markets downturns; volatile transaction and LaSalle incentive fees; competition and pricing pressure; client retention and contract termination; talent retention; acquisition integration; cybersecurity, privacy and data protection; operational and vendor-related liabilities; regulatory and tax changes; currency exposure; and climate-related property risks.
- JLL reported various ordinary-course claims and litigation, some with substantial asserted damages, but said it did not expect their resolution to materially adversely affect financial position, results or liquidity. It retained up to $2.5 million per professional-indemnity claim, inclusive of deductible, through its captive insurer; claims may exceed insurance coverage.
- JLL had $240.6 million of maximum unfunded co-investment commitments and potential acquisition earn-outs of up to $407.3 million, subject to performance conditions. Contractual obligations totaled $2.16 billion, including $890.9 million of lease obligations.
- Effective January 1, 2019, lease accounting was expected to add approximately $650–$700 million of right-of-use assets and lease liabilities, primarily for office leases; this was an expected balance-sheet presentation impact, not a stated cash outflow.
Most important facts for investors to verify
- How much 2018 earnings growth reflected recurring RES operations versus LaSalle incentive fees and the prior-year tax-reform charge.
- Whether operating cash flow recovers from its decline and how working capital, incentive compensation and reimbursable balances evolve.
- Whether Asia Pacific’s margin pressure and the improvement in EMEA are sustained, and whether transformation investments produce expected efficiencies.
- The status and potential cash impact of $240.6 million in unfunded co-investment commitments and up to $407.3 million in contingent earn-outs.
- The actual lease-balance impact of adopting the new lease standard, and any material changes in litigation, insurance exposure, cybersecurity or client demand.